Patent Docs

Happy Thanksgiving from Patent Docs

The authors and contributors of Patent Docs wish their readers and families a Happy Thanksgiving.  Publication of Patent Docs will resume on November 23rd.

The authors and contributors of Patent Docs wish their readers and families a Happy Thanksgiving.  Publication of Patent Docs will resume on November 23rd.

A Glimmer of an Idea on an Experimental Use Exemption

By Kevin E. Noonan --

One of the most powerful, visceral arguments made by the American Civil Liberties Union in Assoc. Molecular Pathol. v. Myriad Genetics, 689 F. 3d 1303 (2013), was that permitting Myriad and the University of Utah to have patent rights to isolated human DNA inhibited basic research.  Indeed, the meme that patents can interfere with free access to the "building blocks" of science and technology can be found in Supreme Court dicta from Funk Brothers Seed Co. v. Kalo Inoculant Co., 333 U.S. 127 (1948), to Myriad and Mayo Collaborative Services v. Prometheus Labs., Inc., 132 S.Ct. 1289 (2012).  Similarly, opponents of the Bayh-Dole Act (codified at 35 U.S.C. §§ 200-212), which permits universities to patent inventions made using Federal funding, base some of their arguments on the inequity visited on the public in allowing these inventions to be protected by patent and thus (at least technically) making scientific and research use an act of infringement.

These concerns were exacerbated by the Federal Circuit decision in Madey v. Duke Univ., 307 F.3d 1351 (Fed. Cir. 2002), where the Court agreed that the practice of a patented invention by Duke University researchers was not protected by an "experimental use" exemption.  In doing so, the Court recharacterized the nature of such scientific use by universities, ostensibly based on the "commercial" nature of modern university practice:

In short, regardless of whether a particular institution or entity is engaged in an endeavor for commercial gain, so long as the act is in furtherance of the alleged infringer's legitimate business and is not solely for amusement, to satisfy idle curiosity, or for strictly philosophical inquiry, the act does not qualify for the very narrow and strictly limited experimental use defense.  Moreover, the profit or non-profit status of the user is not determinative.

This decision cabined the (common law) experimental use exemption to activities akin to the Victorian practice of observing with crude microscopes rotifers in a drop of pond water as an after-dinner amusement amongst gentlemen.  The Court's reasoning was set forth as follows:

Our precedent clearly does not immunize use that is in any way commercial in nature.  Similarly, our precedent does not immunize any conduct that is in keeping with the alleged infringer's legitimate business, regardless of commercial implications.  For example, major research universities, such as Duke, often sanction and fund research projects with arguably no commercial application whatsoever.  However, these projects unmistakably further the institution's legitimate business objectives, including educating and enlightening students and faculty participating in these projects.  These projects also serve, for example, to increase the status of the institution and lure lucrative research grants, students and faculty.

Regardless of the practicality of these distinctions, there the law has rested ever since, and it is generally recognized that there is no effective experimental use exemption under U.S. patent law.

There are, of course, exemptions to infringement liability in the statute; for example, 35 U.S.C. § 287(c) provides:

(1) With respect to a medical practitioner's performance of a medical activity that constitutes an infringement under section 271(a) or (b), the provisions of sections 281, 283, 284, and 285 shall not apply against the medical practitioner or against a related health care entity with respect to such medical activity.

where

"medical activity" means the performance of a medical or surgical procedure on a body, but shall not include (i) the use of a patented machine, manufacture, or composition of matter in violation of such patent, (ii) the practice of a patented use of a composition of matter in violation of such patent, or (iii) the practice of a process in violation of a biotechnology patent.

"medical practitioner" means any natural person who is licensed by a State to provide the medical activity described in subsection (c)(1) or who is acting under the direction of such person in the performance of the medical activity.

"body" shall mean a human body, organ or cadaver, or a nonhuman animal used in medical research or instruction directly relating to the treatment of humans.

And the exemption does not apply to activities directly related to "commercial development, manufacture, sale, importation, or distribution of a machine, manufacture, or composition of matter or the provision of pharmacy or clinical laboratory services (other than clinical laboratory services provided in a physician's office)," and "regulated under the Federal Food, Drug, and Cosmetic Act, the Public Health Service Act, or the Clinical Laboratories Improvement Act."

Since the Madey decision there has been no traction for expanding the statutory exemption beyond the scope of § 287(c), but the Court's Madey decision itself provides a possible hint at a path forward.  In footnote 6 of the opinion, the Court states (citing footnote 3 in the District Court's opinion):

In a footnote, the district court cites to a section from the Bayh-Dole Act to support its reasoning that the government has a license to have patents practiced on its behalf when the government contributed to the funding of such patents.  Id. at 16 n. 3 (citing 35 U.S.C. § 202(c)(4) (2000)).  The relevant section is set forth below.

(c) Each funding agreement with a small business firm or nonprofit organization shall contain appropriate provisions to effectuate the following: (4) With respect to any invention in which the contractor elects rights, the Federal agency shall have a nonexclusive, nontransferrable, irrevocable, paid-up license to practice or have practiced for or on behalf of the United States any subject invention throughout the world․  35 U.S.C. § 202(c)(4) (2000).

The district court stated that the "funding agreements for the inventions created under the ′994 and ′103 patents[-in-suit] expressly provide that the Government retained rights in those inventions."  Id.  Thus, the district court reasoned, in light of the Bayh-Dole Act, Duke's use of the patents that has been authorized by the government does not constitute patent infringement.  Finally, the district court noted that: "[a]lthough the parties have presented conflicting evidence as to the extent to which the patented devices have been used for a purpose consented to by the Government, because [Madey] has failed to create a genuine issue of material fact as to whether [Duke] has commercially benefited or intends to do so with respect to the patents at issue, the uses that have been made to date with respect to both patents are, at this point, exempt from infringement liability."  Id.

The Bayh-Dole Act itself expressly provides limits and direction on how technology patented and licensed by universities under its provisions should behave; for example, in 35 U.S.C. § 204:

Notwithstanding any other provision of this chapter, no small business firm or nonprofit organization which receives title to any subject invention and no assignee of any such small business firm or nonprofit organization shall grant to any person the exclusive right to use or sell any subject invention in the United States unless such person agrees that any products embodying the subject invention or produced through the use of the subject invention will be manufactured substantially in the United States [subject to waiver under conditions where this proscription cannot be carried out].  (Added Pub. L. 96–517, § 6(a), Dec. 12, 1980, 94 Stat. 3023.)

This suggests a possible avenue to enact at least a partial experimental use exemption for the members of society most impacted by even technical liability for infringement (i.e., university researchers, where the overwhelming amount of such technical infringement occurs).  Specifically, Congress could amend the Bayh-Dole Act to provide that licenses of university technologies contain, and the universities themselves be bound to grant, non-exclusive licenses to use patented technology to university researchers for non-commercial purposes:

Any patent subject to the provisions of this title, and any license to any such patent granted to any commercial entity, shall be subject to a non-exclusive license to practice the patented invention for non-commercial research purposes by researchers of a U.S. university, non-profit organization, or other scientific research institute.

The statute would be limited to university patents and to university or other research institutes or organizations, but it is precisely these patents and these entities purportedly most negatively affected by the present existence of technical infringement liability (and were the entities involved in Madey v. Duke).  The proposed statutory change is not intended to be a panacea, but its existence could ameliorate the angst felt by lawmakers and the judiciary (as well as policymakers and pundits) by the possible chilling effect of patenting on innovation.  Make no mistake, the evidence is scant that there has been any such chill; after all, the poster child for the effects of this behavior, the Myriad gene patents, had tens of thousands of scientific papers published from grant to invalidation by the Supreme Court and Federal Circuit (see "In Defense of Patenting").  But to the extent that this is a genuine issue, actual or potential, having a statutory shield for any possible misbehavior by patentees (and their licensees) might influence policymakers to be less mindful of the rhetoric and more cognizant of the benefits of almost forty years of technology transfer under the Bayh-Dole Act.

CDC and DOD Prepare for Zombie Apocalypse

By Donald Zuhn –-

While the U.S. Patent and Trademark Office has yet to receive any patent applications describing  inventions for dealing with a widespread rise of zombies (other than hi-tech "zombie" servers, virtual machines, processes, etc.), the Centers for Disease Control and Prevention (CDC) and U.S. Department of Defense (DOD) have taken steps to prepare for a zombie apocalypse.

The CDC website, for example, provides information on zombie preparedness.  Products listed on the page include links to a Zombie Preparedness Blog and Zombie Preparedness for Educators.  The CDC's Zombie Preparedness Blog advises that "[t]here are all kinds of emergencies out there that we can prepare for," including "a zombie apocalypse," and notes that "[y]ou may laugh now, but when it happens you'll be happy you read this, and hey, maybe you'll even learn a thing or two about how to prepare for a real emergency."  The blog provides a brief history of zombies and includes a list of items for an emergency kit.  The CDC notes that "what first began as a tongue-in-cheek campaign to engage new audiences with preparedness messages has proven to be a very effective platform," and therefore, the CDC continues "to reach and engage a wide variety of audiences on all hazards preparedness via 'zombie preparedness'."  The CDC even provides a graphic novel, entitled "Preparedness 101: Zombie Pandemic," which demonstrates the importance of being prepared before disaster (actual rather than fictional) strikes.

The CDC is not alone in preparing for a zombie apocalypse, as reported in a History Channel article (see "Are You Prepared for a Zombie Apocalypse? The U.S. Government Is").  In 2011 (coincidentally, the same year that the CDC began its zombie preparedness campaign), the DOD released a strategy to combat a potential zombie apocalypse – CONPLAN 8888-11.  The plan states that it "was not actually designed as a joke."  Of course, the rest of the plan's disclaimer explains that:

During the summers of 2009 and 2010, while training augmentees from a local training squadron about the JOPP [Joint Operation Planning Process], members of a USSTRATCOM [U.S. Strategic Command] component found out (by accident) that the hyperbole involved in writing a "zombie survival plan" actually provided a very useful and effective training tool.  Planners who attended JPME II at the Joint Combined Warfighting School also realized that training examples for plans must accommodate the political fallout that occurs if the general public mistakenly believes that a fictional training scenario is actually a real plan.  Rather than risk such an outcome by teaching our augmentees using the fictional "Tunisia" or "Nigeria" scenarios used at JCWS, we elected to use a completely-impossible scenario that could never be mistaken as a real plan.

Although the zombie apocalypse is confined to the small and big screens, both the CDC and DOD have found ways to use the extremely popular zombie genre to prepare people for real-life disasters and explore the basic concepts of plan and order development.

Cai v. Diamond Hong, Inc. (Fed. Cir. 2018)

By Joseph Herndon --

Zheng Cai DBA Tai Chi Green Tea Inc. appealed an opinion of the U.S. Patent and Trademark Office Trademark Trial and Appeal Board (TTAB) cancelling registration of his mark "WU DANG TAI CHI GREEN TEA" due to a likelihood of confusion with Diamond Hong, Inc.'s registered mark, "TAI CHI," pursuant to 15 U.S.C. § 1052(d) (2012).

The Federal Circuit affirmed the decision, and despite the two marks (shown below) looking substantially different in appearance at first glance, other factors weighed in favor of the cancellation.

Section 1052(d) provides that a trademark may be refused if it consists of or comprises a mark which so resembles a mark registered in the USPTO, or a mark or trade name previously used in the United States by another and not abandoned, as to be likely, when used on or in connection with the goods of the applicant, to cause confusion, or to cause mistake, or to deceive (15 U.S.C. § 1052(d)).

In Application of E.I. DuPont DeNemours & Co., the Court articulated thirteen factors to consider when determining likelihood of confusion (DuPont factors).  Not all of the DuPont factors are relevant to every case, and only factors of significance to the particular mark need be considered.

The thirteen factors are as follows:  (1) similarity of the marks; (2) similarity and nature of goods described in the marks' registrations; (3) similarity of established trade channels; (4) conditions of purchasing; (5) fame of the prior mark; (6) number and nature of similar marks in use on similar goods; (7) nature and extent of actual confusion; (8) length of time and conditions of concurrent use without evidence of actual confusion; (9) variety of goods on which mark is used; (10) market interface between applicant and owner of a prior mark; (11) extent to which applicant has a right to exclude others from use of its mark; (12) extent of potential confusion; and (13) any other established probative fact on effect of use.

Between the two marks, in its likelihood of confusion analysis, the TTAB considered the first three DuPont factors, treating the remainder as neutral because neither party submitted evidence related to them.

Mr. Cai argued that the TTAB improperly weighed these three DuPont factors to arrive at an incorrect conclusion regarding likelihood of confusion. A summary of the analysis of these factors is included below.

1.  Similarity of the nature of the goods

With respect to the similarity and nature of the goods, the goods covered by each mark overlap.  Mr. Cai's WU DANG TAI CHI GREEN TEA mark identifies the goods as "Green tea; Tea; Tea bags."

In turn, among many goods identified in its registration, Diamond Hong's TAI CHI mark identifies "tea."  Given this plain overlap, the TTAB's determination that the parties' goods are identical in part is supported by substantial evidence.

2.  Similarity of established trade channels

With respect to similarity of the established trade channels through which the goods reach customers, the TTAB followed case law and presumed that the identical goods move in the same channels of trade and are available to the same classes of customers for such goods—here, general consumers who consume or purchase tea.

Since the marks cover identical goods (tea), this presumption attaches.  Mr. Cai failed to produce evidence to rebut this presumption.

3.  Similarity of the marks

With regard to the similarity of the marks themselves, the TTAB must examine the similarity or dissimilarity of the marks in their entireties as to appearance, sound, connotation, and commercial impression.

The Federal Circuit noted that the proper test is not a side-by-side comparison of the marks, but instead whether the marks are sufficiently similar in terms of their commercial impression such that persons who encounter the marks would be likely to assume a connection between the parties.

Where the goods at issue are identical, the degree of similarity necessary to support a conclusion of likely confusion declines.

Here, the marks were considered similar by the Federal Circuit, when considered as a whole, because they both invoke a large yin-yang symbol and prominently display the term TAI CHI.

Specifically, the WU DANG TAI CHI GREEN TEA mark to Mr. Cai is described as follows:  the color(s) green and white is/are claimed as a feature of the mark, and the mark consists of a circle outlined in green, that divides to be half green and half white, with a single dot located at each half with the opposite color; on the top of the mark, it has words "Tai Chi Green Tea"; at the bottom of the mark, it has words "Wu Dang."  The mark is reproduced below.

Similarly, the TAI CHI mark of Diamond Hong is presented in the following terms:  the mark consists of a man engaged in a tai chi position atop a yin-yang symbol with the term "Tai Chi" below the symbol and a Chinese character on each side of the symbol.  The mark is reproduced below.

The Federal Circuit noted that color is not claimed as a feature of Diamond Hong's mark, and this further highlights the likelihood of confusion because, as the TTAB correctly identified, Diamond Hong's mark could be presented in a green-and-white color scheme like Mr. Cai's mark.

The Federal Circuit agreed with the TTAB's findings as to the DuPont factors, and found that the findings were supported by substantial evidence.  Thus, the Federal Circuit affirmed the Opinion of the U.S. Patent and Trademark Office's Trademark Trial and Appeal Board.

Despite the two marks looking quite different, the DuPont factors weighed heavily in factor of cancellation of Mr. Cai's mark since the nature of goods described in the marks' registrations were identical and the established trade channels were identical.

There were other DuPont factors that Mr. Cai could have perhaps argued, however, he encountered errors through submission of evidence, and further briefs by Mr. Cai were not considered.

Cai v. Diamond Hong, Inc. (Fed. Cir. 2018)
Panel: Chief Judge Prost and Circuit Judges Wallach and Hughes
Opinion by Circuit Judge Wallach

ABA Provides Guidance on Required Disclosure of Attorney Errors

By Josh Rich --

On April 17th, the American Bar Association provided a formal opinion regarding the requirement that attorneys disclose errors to clients.  Its opinion was based on Rule 1.4 of the Model Rules of Professional Conduct, which governs communications with clients.  The ABA concluded that attorneys have a duty to disclose material errors to clients, but no duty to disclose errors to former clients.  In this context, an error is material if a disinterested attorney would believe that the error would likely cause harm or prejudice to the client, or that the error would reasonably cause a client to consider terminating the practitioner's representation -- even if there would be no prejudice to the client.

Rule 1.4 of the Model Rules of Professional Conduct is the widely-adopted basis for the duty of disclosure to clients.  Forty-nine of the fifty states have adopted versions of the Model Rules of Professional Conduct, along with the U.S. Patent and Trademark Office and four of the five U.S. territories.[1]

The U.S. Patent and Trademark Office's version of Model Rule 1.4 reads:

(a) A practitioner shall:
    (1) Promptly inform the client of any decision or circumstance with respect to which the client's informed consent is required by the USPTO Rules of Professional Conduct;
    (2) Reasonably consult with the client about the means by which the client's objectives are to be accomplished;
    (3) Keep the client reasonably informed about the status of the matter;
    (4) Promptly comply with reasonable requests for information from the client; and
    (5) Consult with the client about any relevant limitation on the practitioner's conduct when the practitioner knows that the client expects assistance not permitted by the USPTO Rules of Professional Conduct or other law.
(b) A practitioner shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation.

37 C.F.R. § 11.104.  The obligation to disclose errors arises primarily out of sections (a)(1) and (a)(3), but also relies upon sections (a)(2) and (a)(4).  Specifically, a material error is the sort of information that forms an important part of the status of a case or matter and would lead the client to have to make informed decisions.  In light of those provisions, numerous states (both courts and bar associations) have found that an attorney has an obligation to disclose any errors that could cause prejudice to a client, underlie an ethics complaint, or give rise to a malpractice claim.

The ABA found that the obligation of disclosure would go further, however.  Even if there is no prejudice to the client, it concluded that there would be a duty to disclose errors that an independent, disinterested attorney would believe would cause a reasonable client to lose confidence in the erring practitioner.  Notably, no jurisdiction has yet found such an obligation of disclosure, and the issue would not come up in the context of a malpractice case.  However, it could come up in the context of an ethics complaint, and the risk of non-disclosure (or covering up) a non-prejudicial error is likely greater than the cost of disclosing it with an explanation.

In determining the scope of the obligation of disclosure, however, the ABA found a clear limit.  Namely, the obligation to disclose extends only to current clients.  Rule 1.4 describes the obligation of communication as relating to a "client," not to former clients.  As a result, if the error is not identified until after the representation ends -- and the representation has been terminated in accordance with Rule 1.16 -- there is no obligation to disclose an error.  There may be practical reasons, such as goodwill or business development, for such a disclosure, but there is no ethical obligation under this ABA opinion.

Thus, the ABA has drawn a clear division between current and former clients with regard to the disclosure of errors.  For a current client, a practitioner must disclose errors that a reasonable, disinterested practitioner would believe (a) would be reasonably likely to harm or prejudice the client or (b) would reasonably cause the client to consider terminating the representation.  For former clients, as long as the representation has been properly terminated, there is no ethical duty to disclose any errors whatsoever.

[1] California has not adopted the Model Rules, but has a provision analogous to Rule 1.4 in its rules.  Furthermore, the bar has proposed adoption of the Model Rules to the California Supreme Court.  The only territory that has not adopted the Model Rules is Puerto Rico.

House Bill Would Establish National Security Commission on Artificial Intelligence

By Aaron Gin --

On March 20, 2018, Rep. Elise Stefanik (R-NY) introduced a bill (H.R. 5356) in the United States House of Representatives in an effort to establish a new National Security Commission on Artificial Intelligence.  The Commission itself would be considered an independent establishment in the Executive Branch under 5 U.S.C. § 104.

The bill, entitled the National Security Commission Artificial Intelligence Act of 2018, directs the Commission to review advances in "artificial intelligence, related machine learning developments, and associated technologies."  Specifically, the Commission will consider how to advance such technologies so as to "comprehensively address the national security needs of the Nation, including economic risk, and any other needs of the Department of Defense or the common defense of the Nation."

Various officials, including the Secretary of Defense, the respective Chairpersons of the Committees on Armed Services of the House and Senate, as well as the ranking minority members of those Committees would be responsible for selecting the Commission's eleven appointed members.  Under the language of the bill, the Commission is tasked to provide an initial report no less than 180 days from enactment of the Act and a comprehensive report no later than one year from enactment.  The reports are to be submitted to the President and Congress and will include subject matter such as:

(A) the competitiveness of the United States in artificial intelligence, machine learning, and other associated technologies, including matters related to national security, economic security, public-private partnerships, and investments;

(B) means and methods for the United States to maintain a technological advantage in artificial intelligence, machine learning, and other associated technologies, including quantum computing and high performance computing;

(C) developments and trends in international cooperation and competitiveness, including foreign investments in artificial intelligence, machine learning, and computer science fields;

(D) means by which to foster greater emphasis and investments in basic and advanced research to stimulate private, public, academic and combined initiatives in artificial intelligence, machine learning, and other associated technologies, including quantum computing and high performance computing;

(E) workforce and education incentives to attract and recruit leading talent in artificial intelligence and machine learning, including science, technology, engineering, and math programs;

(F) risks associated with United States and foreign country advances in military employment of artificial intelligence and machine learning, including under the international law of armed conflict, international humanitarian law, and escalation dynamics;

(G) associated ethical considerations related to artificial intelligence and machine learning as it will be used for future applications;

(H) means to establish data standards and provide incentives for the sharing of open training data within related data-driven industries;

(I) development of privacy- and security-protecting measures for data in artificial intelligence, machine learning, and associated technologies; and

(J) any other matters the Commission deems relevant to the common defense of the Nation.

The bill appropriates up to $10 million from the Department of Defense budget to fund the Commissions activities.  Upon introduction, the bill was referred to the Committee on Armed Services, as well as the Committees on Education and the Workforce, Foreign Affairs, Science, Space, and Technology, and Energy and Commerce for a period of consideration and comment.

The bill defines "artificial intelligence" in very similar (and, in some cases, identical) terms as other pieces of proposed House and Senate AI legislation, namely:

(1) Any artificial system that performs tasks under varying and unpredictable circumstances without significant human oversight, or that can learn from experience and improve performance when exposed to data sets.

(2) An artificial system developed in computer software, physical hardware, or other context that solves tasks requiring human-like perception, cognition, planning, learning, communication, or physical action.

(3) An artificial system designed to think or act like a human, including cognitive architectures and neural networks.

(4) A set of techniques, including machine learning, that is designed to approximate a cognitive task.

(5) An artificial system designed to act rationally, including an intelligent software agent or embodied robot that achieves goals using perception, planning, reasoning, learning, communicating, decision making, and acting.

Recent legislative activity in this technology area of seems to suggest increasing public interest in artificial intelligence and its potential for positive and negative effects on society.  Time will tell whether H.R. 5356 -- and its national security focus -- will enjoy increased traction as the bill is considered, as compared to similar AI legislation proposed under the Secretaries of Commerce (H.R. 4625 and S. 2217) and Labor (H.R. 4829).

For additional information regarding this topic, please see:

• H.R.5356 – National Security Commission Artificial Intelligence Act of 2018
• GOP rep introduces bill to address national security risks of artificial intelligence (The Hill, March 21, 2018)
• House lawmaker pitches new AI commission to brief Trump (Washington Examiner, March 21, 2018)
• Multiple Artificial Intelligence Bills Introduced in House and Senate (Patent Docs, February 15, 2018)

In re Silver -- Texas Supreme Court Recognizes Patent Agent Privilege

By Josh Rich --

In reversing an appellate court decision that had caused concerns throughout the patent world, the Texas Supreme Court recognized that communications between patent agents and clients could be covered by the attorney-client privilege.[1]  In Patent Office proceedings and patent litigation, patent agent-client communications could already be protected; in non-patent litigation, however, it is far less clear -- and the prior Texas appellate court decision suggested such communications could be revealed in discovery.  By reversing the appellate court decision, the Texas Supreme Court should have patent agents feeling more confident that their representation of clients in patent prosecution is no different than that provided by patent attorneys . . . and their clients breathing a sigh of belief.

In this case, Mr. Silver was the named inventor on a patent application related to a stand-alone tablet designed to allow restaurant customers to order food and pay without having to interact with a waiter or waitress.  He hired a patent agent to prosecute the application before the U.S. Patent and Trademark Office, which the agent did successfully.  Mr. Silver sold the patent to Tabletop Media, LLC, who then licensed it to restaurant chains.[2]  Tabletop allegedly failed to pay him, and Mr. Silver sued Tabletop for breach of contract.  In the breach of contract case, brought by Mr. Silver in Texas state court, Tabletop sought production of communications between Mr. Silver and his patent agent.

The trial court compelled production of the communications, and the Texas Court of Appeals refused to overturn the trial court's decision in responding to Silver's petition for writ of mandamus.[3]  It did so because it understood Mr. Silver as requesting the court to establish a patent agent-client privilege separate from the attorney-client privilege, which it indicated that it was not empowered to do.[4]  One of the appellate court judges dissented from the panel opinion, understanding Mr. Silver's request not as the creation of a new privilege, but as an application of the existing attorney-client privilege to the patent agent-client relationship.[5]  Ultimately, the Texas Supreme Court unanimously agreed with the dissent.[6]

In Texas, claims of attorney-client privilege are governed by Texas Rule of Evidence 503.  Under that rule, "[a] client has a privilege to refuse to disclose and to prevent any other person from disclosing confidential communications made to facilitate the rendition of professional legal services to the client [between, among others] between the client or the client's representative and the client's lawyer."[7]  In that context, a "lawyer" is defined as "a person authorized, or who the client reasonably believes is authorized, to practice law in any state or nation."[8]  Thus, the key question was whether a patent agent was a person "authorized to practice law" in a state or nation.

While not controlled by Federal decisions, the Texas Supreme Court's answer to that question was informed by them.  Over five decades ago, in Sperry v. State of Florida ex rel. Florida Bar,[9] the Supreme Court had held that a patent agent's prosecution of applications before the U.S. Patent and Trademark Office did not constitute the unauthorized practice of law.  Then, in In re Queen's University at Kingston, which was decided just months before the Texas appellate court's decision, the Federal Circuit had determined as a matter of Federal common law that the attorney-client privilege included "a patent-agent privilege extending to [a client's] communications with non-attorney patent agents when those agents are acting within the agent's authorized practice of law before the Patent Office."[10]  In both cases, the Federal courts had reached the conclusion based on the belief that a patent agent's role in patent prosecution was not just law-like activity, it was the practice of law itself.

The Texas court also looked to Texas statutes and dictionary definitions for its decision, since Rule 503 does not itself define what "the practice of law" entails.  The Texas State Bar Act includes a definition of the practice of law in the context of unauthorized practice of law, but it is not necessarily coextensive with Rule 503.[11]  Similarly, both Webster's and Black's provide dictionary definitions.  The definition in Black's Law Dictionary includes "preparing papers to bring about various transactions,"[12] which is exactly what patent prosecution involves.  Both the Texas statutes and dictionaries also require that a lawyer's services be provided directly to a client, but that unquestionably occurs with patent agents within the scope of patent prosecution.

For the privilege to apply, Rule 503 also requires a lawyer to be authorized to practice by a state or nation.  The defendant argued that meant that a person had to be licensed as a lawyer by a state or nation, regardless of authorization by the U.S. Patent and Trademark Office.  Again, the Texas court considered the Sperry and Queen's University cases as persuasive authority.  But more importantly, it focused on the distinction between being "authorized" to practice law and being "licensed" to practice law.  It found the latter to be a subset of the former, not coextensive therewith.  Under U.S. Patent and Trademark Office regulations, a patent agent is authorized to practice before it even if he or she is not licensed to do so.  Accordingly, the Texas Supreme Court found that a patent agent is a "lawyer" for purposes of the application of the attorney-client privilege in relation to communications regarding patent prosecution.

While it might otherwise seem that the Texas Supreme Court's decision in In re Silver is merely one more case supporting the existence of a patent agent-client privilege,[13] it bears greater importance because it reversed a decision to the contrary.  The Texas Appellate Court's decision had raised great concerns that states, in breach of contract or other state law claim litigation, would not extend privilege to such communications.  The appellate court's decision had a chilling effect on clients' choice of practitioners:  to ensure the application of attorney-client privilege, they were opting for patent attorneys or patent agents supervised by attorneys.  Now, with that decision reversed, there is less reason for fear of revelation of communications and greater freedom to discuss patent applications directly with patent agents.  Thus, today, all precedent points to patent agent-client communications being privileged.

[1] In re Silver, Case No. 16-0682 (Tex. Feb. 23, 2018).
[2] If you've used a Ziosk tablet or Abuelo's, Chili's, or Red Robin, you may be part of Mr. Silver's damages claim.
[3] In re Silver, 500 S.W. 3d 644, 647 (Tex. App. 2016).
[4] Id. at 645.
[5] Id. at 650 (Evans, J., dissenting).
[6] For a more complete discussion of the Texas Appellate Court's decision, and other recent patent agent privilege decisions and regulations, see "Patent Office Ethics Developments: Patent Agent Privilege and Duty of Disclosure," Snippets (Winter 2017).
[7] Tex. R. Evid. 503(b)(1).
[8] Tex. R. Evid. 503(a)(3).
[9] 373 U.S. 379 (1963).
[10] 820 F.3d 1287, 1302 (Fed. Cir. 2016).  For an excellent recap of the Queen's University case, see "In re Queen's University at Kingston (Fed. Cir. 2016)".
[11] See Tex. Gov't Code § 81.101.
[12] The Court showed its respect for patent prosecutors by not only acknowledging that patent applications are legal documents, but actually constitute "one of the most difficult legal instruments to draw with accuracy."
[13] In the interim between the Texas Appellate Court's decision and the Texas Supreme Court's decision, the Patent and Trademark Office adopted patent agent privilege as a rule for Patent Trial and Appeal Board proceedings.  See "USPTO Issues Final Rule Establishing Patent Agent Privilege".

Multiple Artificial Intelligence Bills Introduced in House and Senate

By Aaron Gin --

Over the last two months, the United States legislature has introduced three new bills intended to establish a Federal Advisory Committee on the rapidly-evolving field of artificial intelligence (AI) and to analyze and report on the impact and growth of the technology.

FUTURE of AI Act

On December 12, 2017, Rep. John Delaney (D-MD) and Sen. Maria Cantwell (D-WA) introduced identical bills in the House (as H.R. 4625) and Senate (as S. 2217).  The twin bills were entitled the "Fundamentally Understanding The Usability and Realistic Evolution of Artificial Intelligence Act of 2017" -- or FUTURE of AI Act.

One aim of the bills is to better understand how AI might maximally benefit the economic prosperity and social stability of the United States.  The bills would also direct the Secretary of Commerce to establish a Federal Advisory Committee, which would be tasked with providing guidance on the development and implementation of artificial intelligence.  Among other roles, the Advisory Committee is to promote a "climate of investment and innovation," "optimize the development of [AI]," support the "unbiased development and application of [AI]," and "protect the privacy rights of individuals."

The Advisory Committee is asked to provide advice to the Secretary of Commerce with regard to several specific topics including:

(A) The competitiveness of the United States, including matters relating to the promotion of public and private sector investment and innovation into the development of artificial intelligence.

(B) Workforce, including matters relating to the potential for using artificial intelligence for rapid retraining of workers, due to the possible effect of technological displacement.

(C) Education, including matters relating to science, technology, engineering, and mathematics education to prepare the United States workforce as the needs of employers change.

(D) Ethics training and development for technologists working on artificial intelligence.

(E) Matters relating to open sharing of data and the open sharing of research on artificial intelligence.

(F) International cooperation and competitiveness, including matters relating to the competitive international landscape for artificial intelligence-related industries.

(G) Accountability and legal rights, including matters relating to the responsibility for any violations of laws by an artificial intelligence system and the compatibility of international regulations.

(H) Matters relating to machine learning bias through core cultural and societal norms.

(I) Matters relating to how artificial intelligence can serve or enhance opportunities in rural communities.

(J) Government efficiency, including matters relating to how to promote cost saving and streamline operations.

The Advisory Committee is additionally required to conduct a study on various intersections between AI and society, including analyzing the effects of AI on the economy, workforce, and competiveness of the United States.  The study also seeks to identify and eliminate bias in AI algorithms, identify potential "harmful outcomes," and contemplate the incorporation of ethical standards in AI development.  Furthermore, within 540 days of enactment of the Act, the Advisory Committee is required to provide a report based on the study to the Secretary of Commerce and Congress.

The bills direct that the Advisory Committee shall include 19 voting members appointed by the Secretary of Commerce.  Specifically, the voting members will be selected from "diverse" geographical locations within the United States and include:  five members from academia or the AI research community, six from private industry, six from civil society, and two from labor organizations.

One of the notable features of the twin House and Senate bills is the broad range of technologies being considered under the term "artificial intelligence."  The bills both define AI as:

(A) Any artificial systems that perform tasks under varying and unpredictable circumstances, without significant human oversight, or that can learn from their experience and improve their performance.  Such systems may be developed in computer software, physical hardware, or other contexts not yet contemplated.  They may solve tasks requiring humanlike perception, cognition, planning, learning, communication, or physical action.  In general, the more human-like the system within the context of its tasks, the more it can be said to use artificial intelligence.

(B) Systems that think like humans, such as cognitive architectures and neural networks.

(C) Systems that act like humans, such as systems that can pass the Turing test or other comparable test via natural language processing, knowledge representation, automated reasoning, and learning.

(D) A set of techniques, including machine learning, that seeks to approximate some cognitive task.

(E) Systems that act rationally, such as intelligent software agents and embodied robots that achieve goals via perception, planning, reasoning, learning, communicating, decision making, and acting.

H.R. 4625 and S. 2217 also contemplate "artificial general intelligence," which they define as "a notional future artificial intelligence system that exhibits apparently intelligent behavior at least as advanced as a person across the range of cognitive, emotional, and social behaviors."  Yet further, the bills consider "narrow artificial intelligence," or artificial intelligence systems that address specific applications such as playing strategic games, language translation, self-driving vehicles, and image recognition.

AI Jobs Act of 2018

On January 18, 2018, Rep. Darren Soto (D-FL) introduced H.R. 4829 entitled the "AI Jobs Act of 2018".  The bill promotes a "21st century artificial intelligence workforce," and focuses on training and retraining American workers in light of the possible effects of AI on the workforce and human worker demand.

H.R. 4829 requires the Secretary of Labor to undertake an AI study to determine its potential impacts on the workforce.  A report based on the study is to include:

(1) An outline of the specific data, and the availability of such data, necessary to properly analyze the impact and growth of artificial intelligence.

(2) Identification of industries that are projected to have the most growth in artificial intelligence use, and whether the technology will result in the enhancement of workers' capabilities or their replacement.

(3) Analysis of the expertise and education (including computer science literacy) needed to develop, operate, or work alongside artificial intelligence over the next two decades, as compared to the levels of such expertise and education among the current workforce.

(4) Analysis of which demographics (including ethnic, gender, economic, age, and regional) may experience expanded career opportunities, and which such demographics may be vulnerable to career displacement, due to artificial intelligence.

(5) Any recommendations to alleviate workforce displacement, prepare future workforce members for the artificial-intelligence economy, and any other relevant observations or recommendations within the field of artificial intelligence.

In preparing the report, the Secretary of Labor is tasked with conducting a series of public hearing or roundtables with various organizations, such as industrial stakeholders, heads of Federal agencies, local educational agencies, institutions of higher education, workforce training organizations, and National Laboratories.

While some language is common, the new House bill defines "artificial intelligence" more succinctly than the earlier twin bills.  Specifically, H.R. 4829 characterizes AI as systems that:

(A) think like humans (including cognitive architectures and neural networks);

(B) act like humans (such as passing the Turing test using natural language processing, knowledge representation, automated reasoning, and learning);

(C) think rationally (such as logic solvers, inference, and optimization);

(D) act rationally (such as intelligent software agents and embodied robots that achieve goals via perception, planning, reasoning, learning, communicating, decision-making, and acting); or

(E) automate or replicate intelligent behavior.

If enacted, the Acts and their resulting reports will undoubtedly lead to further discussion regarding artificial intelligence and provide multiple perspectives on how AI might impact society for better and, perhaps, for worse.  Additionally, as the bills target the Departments of Commerce and Labor separately, it will also be interesting to see how the different organizations read and react based on their respective AI studies.

For additional information regarding this topic, please see:

• H.R.4625 - FUTURE of Artificial Intelligence Act of 2017
• S.2217 - FUTURE of Artificial Intelligence Act of 2017
• H.R.4829 - AI JOBS Act of 2018
• "Lawmakers introduce bipartisan AI legislation," The Hill, December 12, 2017
• "Microsoft Sees Need for AI Laws, Regulations," Industry Week, January 18, 2018
• "Forget Killer Robots—Bias Is the Real AI Danger," MIT Technology Review, October 3, 2017

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The authors and contributors of Patent Docs wish their readers and families a Happy Thanksgiving.  Publication of Patent Docs will resume on November 25th.

Views on Venue -- Take Two: Did the District of Delaware Get It Right?

By Andrew Williams --

We recently reported that Chief Judge Stark of the District of Delaware interpreted the second prong of the patent venue statute, 28 U.S.C. § 1400(b), in Bristol-Myers Squibb Company v. Mylan because the first prong was no longer applicable in view of the Supreme Court's TC Heartland LLC v. Kraft Foods Group Brands LLC case.  Specifically, Judge Stark anticipated how the Federal Circuit would now address venue in the ANDA context.  With impeccable timing, the Federal Circuit provided an answer to at least one of the questions considered by the Delaware Court:  what is a regular and established place of business?  In this post, we look to see if the conclusions and guidance found in the Bristol-Myers Squibb case were correct (or at least on the right track).

For reference, the patent venue statute reads in its entirety:

Any civil action for patent infringement may be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business.

28 U.S.C. § 1400(b).  Because Mylan is not incorporated in Delaware, it appropriately alleged that BMS could not establish venue pursuant to the first prong after the Supreme Court's TC Heartland decision.  However, Judge Stark concluded that Mylan was unable to meet its burden in establishing that it "does not have a regular and established place of business in Delaware."  He also determined that the "acts of infringement" in the Hatch-Waxman context would be all of the acts that would constitute ordinary patent infringement related to a filed ANDA if, upon FDA approval, the generic drug product is launched into the market.  Correspondingly, he denied the motion to dismiss for improper venue without prejudice and allowed BMS to take jurisdictional discovery in advance of a renewed motion by Mylan.

Last week, in In re Cray Inc., the Federal Circuit granted a petition for a writ of mandamus and directed transfer of a case from the Eastern District of Texas to the Western District of Wisconsin.  As we explained in our previous post, the Federal Circuit concluded that the Texas District Court had abused its discretion by applying an incorrect legal standard.  But did the Delaware Court correctly interpret what a "regular and established place of business" means?

In analyzing the statute, both the Federal Circuit and the Delaware Court looked to In re Cordis, 769 F.2d 733 (Fed. Cir. 1985).  The Cordis decision held that "in determining whether a corporate defendant has a regular and established place of business in a district, the appropriate inquiry is whether the corporate defendant does its business in that district through a permanent and continuous presence there and not . . . whether it has a fixed physical presence in the sense of a formal office or store."  Judge Stark had noted that Cordis was a mandamus case, and therefore the standard used by the Federal Circuit was more deferential to the lower court.  The Federal Circuit similarly cautioned overreliance on Cordis because "the court did not, in its opinion, evaluate venue in light of the statutory language of § 1400(b).  The court simply determined that, under the facts presented, a writ was not justified."  Of course, because the Court granted Cray's writ of mandamus even in view of the heightened requirement for deference, the conclusions reached in that case are likely to apply in most other situations.

First, the Federal Circuit concluded that § 1400(b) is unique to patent law, and therefore it was required to apply its own law and not that of the regional circuit from which the case arose.  This is consistent with the conclusion in the BMS case.  Even though Judge Stark looked to Third Circuit law to see which party bears the burden of proof in a motion to dismiss for improper venue, he acknowledged that substantive questions relating to § 1400(b) are controlled by the Federal Circuit.

Next, Judge Stark had concluded that there are three elements that must be met:  there be a (i) place of business that is (ii) regular and (iii) established.  The Federal Circuit similarly parsed the second prong of the patent venue statute into three elements, but they were not identical:  "(1) there must be a physical place in the district; (2) it must be a regular and established place of business; and (3) it must be the place of the defendant."  In essence, the Federal Circuit combined the second two elements articulated by the Delaware Court, and separated the "place of business" element into one that is "physical" and one that is "of the defendant."  Of course, the question in Cray was whether two employees working in Texas was sufficient to establish venue for their employer in that district.  Nevertheless, even though there was a difference in the parsing of the statute, the Delaware Court still likely addressed all the required elements as identified by the Federal Circuit.

The Federal Circuit then explained that "the first requirement is that there 'must be a physical place in the district.'"  Importantly, the Court noted that the statute "cannot be read to refer merely to a virtual space or to electronic communications from one person to another."  This is consistent with Cordis.  Indeed, Judge Stark had similarly concluded that there needs to be "some sort of meaningful physical manifestation in the district," an inquiry which is a factually driven.

Next, the Federal Circuit pointed out that the "place" must be "regular."  As such, "sporadic activity cannot create venue."  This conclusion, according to the Court, is bolstered by the "established" limitation.  Based on the definition of this term, the place must be of sufficient permanence.  Therefore, "while a business can certainly move its location, it must for a meaningful time period be stable, established."

The Delaware Court came to a similar conclusion.  It first noted what has not sufficed in other cases to establish venue:  (1) simply doing business or being registered to do business in a district, (2) having sufficient "minimum contacts" with the district for the purposes of personal jurisdiction, (3) maintaining a website accessible within the district, and (4) shipping goods into a district, whether to an individual or for distribution by third parties.  Accordingly, it concluded that it "must determine whether a defendant has a regular and established place of business by conducting a fact-intensive inquiry focused on whether the defendant does its business in this District through a permanent and continuous presence here."  This legal framework is not too dissimilar from that articulated in Cray.

Finally, the Federal Circuit pointed out that the place of business must be "the place of the defendant."  Correspondingly, "the defendant must establish or ratify the place of business," while an employee "on his or her own" will not suffice.  The Delaware Court did not delve into such an analysis, perhaps because the actions of individual employees were not at issue in that case.  It did consider as relevant the fact that "the Mylan family includes at least 55 U.S. subsidiaries, more than 40 of which are incorporated in Delaware."  Nevertheless, the Delaware Court was likely more concerned about the relationship of the entities, and not whether the entities themselves could establish venue for the parent.  For example, the Court indicated that discovery could "include understanding the relationship among the 40 Delaware Mylan entities and" the Mylan entities involved in the present suit.

As a result, it does not appear that the Delaware Court's BMS  case is inconsistent with the Federal Circuit's Cray case.  If anything, the two Court's appeared to similarly analyze the patent-specific venue statute, even if they did not arrive at exactly the same conclusions.  However, because the Plaintiff in the Cray case could only "show that there exists within the district a physical location where an employee of the defendant carries on certain work for his employer," the issues addressed to establish venue in the two cases were or will be different.  Nevertheless, it would behoove both parties in the BMS case (and any other party to patent litigation going forward) to pay close attention to the Federal Circuit's analysis in Cray when participating in venue-related discovery or in conjunction with any renewed motion to dismiss for improper venue.

Allergan Avails Itself of Sovereign Immunity

By Kevin E. Noonan --

The 11th amendment to the Constitution reads:

The judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by citizens of another state, or by citizens or subjects of any foreign state.

The application of this principle in patent cases has been controversial, both in litigation (see "The Wall Street Journal's Problem with the U.S. Constitution") and as a shield against inter partes review, by states and in particular state universities claiming the immunity as "arms of the state" (see Covidien LP v. University of Florida Research Foundation Inc. and Neochord, Inc. v. University of Maryland).  Nonetheless, immunity is well established as to the several States.  Last week, Allergan creatively availed itself of this immunity by assigning patents challenged in IPR proceedings to the St. Regis Mohawk Nation (SRMN), which also has the capacity to invoke the protection of sovereign immunity against suit.

The Orange Book-listed patents, Nos. 8,629,111; 8,633,162; 8,642,556; 8,648,048; 8,685,930, and 9,248,191, protect Allergan's RESTASIS^® (Cyclosporine Ophthalmic Emulsion 0.05%), used for chronic dry eye.  Allergan paid SRMN $13.75 million upon transferring these patents, which SRMN licensed to Allergan for $15 million per year until the patents expire on August 27, 2024.  The benefits to both Allergan and SRMN can be appreciated by the estimates of revenues for RESTASIS^®:

(Chart obtained here.)

Allergan is not alone in entering into such arrangements; in August SRC (Cray) Labs LLC transferred patent rights to the tribe, and "dozens and dozens of tribes" are pursuing such arrangements, according to David Pridham, chief executive of Dominion Harbor Group as quoted by Reuters (see "Tech entity has tribal patent deal similar to Allergan's").

The concept of sovereign immunity stems from British common law, banning lawsuits against the king.  Although not explicitly stated in the Amendment, the Supreme Court has interpreted 11th Amendment immunity to extend to actions of a citizen against the state in which she resides.  Hans v. Louisiana, 134 U.S. 1 (1890).  The rationale behind the immunity conferred by the Amendment is that the "States entered the federal system with their sovereignty intact," Blatchford v. Native Village of Noatak, 501 U.S. 775 (1991), and that "the sovereign immunity of the States neither derives from nor is limited by the terms of the Eleventh Amendment.  Rather, . . . the States' immunity from suit is a fundamental aspect of the sovereignty which the States enjoyed before the ratification of the Constitution, and which they retain today," Alden v. Maine, 527 U.S. 706 (1999).  However, the immunity is not absolute.  It can be waived, and many states (as well as the federal government) have waived sovereign immunity in suits for tort and contract.  Certain U.S. Constitutional provisions trump the immunity, such as the Bankruptcy Clause and the 14th Amendment.  However, patent law does not fall within any federal law exemption, and the Supreme Court has decided expressly that States enjoy sovereign immunity against suits for patent infringement.  Florida Prepaid Postsecondary Education Expense Board v. College Savings Bank, 527 U.S. 627 (1999).

The various tribes of Native Americans have also been held to enjoy sovereign immunity, albeit with certain limitations that do not apply to the States.  The immunity stems from common law rather than by statute or Act of Congress, Turner v. United States, 28 U.S. 354 (1919), and has been applied both to state action and private suit.  United States v. United States Fidelity & Guaranty Co., 309 U.S. 506 (1940); Puyallup Tribe, Inc. v. Department of Game of State of Washington, 433 U.S. 165 (1977); and Kiowa Tribe of Oklahoma v. Mfg. Technologies, Inc., 523 U.S. 751, 755 (1998).

Congress has the power to abrogate tribal sovereign immunity, under the Supreme Court's decision in United States v. Lara, 541 U.S. 193, 200 (2004), that "the Constitution grants Congress broad general powers to legislate in respect to Indian tribes, powers that we have consistently described as 'plenary and exclusive.'"  However, Congress can do so only if the intent is "clear and unambiguous" or "unequivocally expressed."  Santa Clara Pueblo v. Martinez, 436 U.S. 49 (1978); see also Michigan v. Bay Mills Indian Cmty., 134 S.Ct. 2024 (2014).

For some this development, while on its face consistent with the law, rankles.  In earlier sovereign immunity cases the inventors (usually university personnel) were obligated (inter alia, under the Bayh-Dole Act) to assign their inventions to the university and state universities were readily recognized as arms of the state for whom the immunity applied.  Here, Allergan is unabashedly obtaining the benefit of tribal sovereign immunity in a commercial transaction.  While such a transfer is well within Allergan's rights to alienate these patents as a private property right, avoidance of IPR as not only a consequence but the express intent of the transfer distinguishes this use of sovereign immunity from other instances.  (And of course it remains to be seen whether patents are exclusively a private property right or more in the nature of a government grant, see Oil States Energy Services, LLC v. Greene's Energy Group, LLC).

Recent history suggests that, at a minimum, Congress will want to hear from the parties on this arrangement.  But in light of earlier controversies like Mylan's Epi-Pen cost increase and the Martin Shkreli affair at a Turing Pharmaceuticals, as well as more general concerns about patent quality and validity and increasing drug costs, it is likely that there will be some effort in Congress to prevent maneuvers such as this one.  The courts have made it clear that any limitation on SRMN's sovereign immunity is solely within the "plenary power" of Congress.  But passage of such a measure must remain in doubt in the current political climate, given the inability of Congress to pass legislation its members seem to be much more committed to than such an esoteric question as sovereign immunity, no matter how relevant the issue may be to their constituents' access to affordable drugs.

Allergan issued a press release on the transfer.

Berkeley Files Opening Brief in CRISPR Appeal

By Kevin E. Noonan --

The University of California/Berkeley filed its opening brief to the Federal Circuit last week, asking that Court to overturn the Patent Trial and Appeal Board's decision that there was no interference-in-fact between Berkeley's application and several U.S. patents and applications assigned to The Broad Institute.  That decision is entitled to review under the substantial evidence standard for the Board's factual determinations, but de novo review for the PTAB's legal determination that Broad's claims-in-interference would not have been obvious in view of the claimed invention in Berkeley's earlier-filed patent application.

To recap, the Board found that there was no interference-in-fact based on these requirements:

In this proceeding, to prevail on its argument that there is no interference, Broad must show that the parties' claims do not meet at least one of the following two conditions:

1) that, if considered to be prior art to UC's claims, Broad's involved claims would not anticipate or render obvious UC's involved claims, or

2) that, if considered to be prior art to Broad's claims, UC's involved claims would not anticipate or render obvious Broad's claims.

Broad will prevail and a determination of no interference-in-fact will be made if a preponderance of the evidence indicates one of these conditions is not met.

In considering the evidence before it, the PTAB gave great weight to contemporaneous, cautious statements in the art in view of Professor Doudna's disclosure of in vitro CRISPR activity regarding whether the system would work in eukaryotic cells.  Specifically, these statements convinced the Board that while the results "suggested the 'exciting possibility'" that CRISPR-Cas9 could be operative in eukaryotic cells, "it was not known whether such a bacterial system would function in eukaryotic cells."  And, "[i]n another report, Doudna was quoted as stating that she had experienced 'many frustrations' getting CRISPR to work in human cells and that she knew that if she succeeded, CRISPR would be 'a profound discovery.'"  UC's assertion of other statements by their inventors that could be interpreted more positively did not convince the Board that there was a reasonable expectation of success in the art for getting the CRISPR-Cas9 system to work in eukaryotic cells, the Board stating that:

Although the statements express an eagerness to learn the results of experiments in eukaryotic cells and the importance of such results, none of them express an expectation that such results would be successful.

The Board swept aside Berkeley's arguments that this reasoning was flawed because the standard is not the inventor's expectations but those of the worker of ordinary skill by stating that "if the inventors themselves were uncertain, it seems that ordinarily skilled artisans would have been even more uncertain."  The Board also quoted Berkeley's expert as having said (contemporaneously with Professor Doudna's report of in vitro CRISPR activity):

There is no guarantee that Cas9 will work effectively on a chromatin target or that the required DNA-RNA hybrid can be stabilized in that context.

The Board concluded that "[w]e fail to see how 'no  guarantee' indicates an expectation of success."

Nor was the Board convinced based on the history of the development of CRISPR technology, which showed that many laboratories independent of the Doudna group quickly applied the new technology to manipulate eukaryotic cell genomic DNA:

Regardless of how many groups achieved success in eukaryotic cells, we are not persuaded that such success indicates there was an expectation of success before the results from these experiments were known.  The unpublished results of research groups are not necessarily an indication of whether ordinarily skilled artisans would have expected the results achieved.  Instead of viewing such work as evidence of an expectation of success, we consider the number of groups who attempted to use CRISPR-Cas9 in eukaryotic cells to be evidence of the motivation to do so, an issue that is not in dispute.  We agree with Broad's argument that a large reward might motivate persons to try an experiment even if the likelihood of success is very low.

On balance, the Board found that this evidence further supported their decision that there was insufficient evidence of a reasonable expectation of success to support Berkeley's allegation that their earlier work and publications would have rendered Broad's invention obvious.  This evidence was that "differences in gene expression, protein folding, cellular compartmentalization, chromatin structure, cellular nucleases, intracellular temperature, intracellular ion concentrations, intracellular pH, and the types of molecules in prokaryotic versus eukaryotic cells, would contribute to this unpredictability [regarding whether the CRISPR-Cas9 system would be operative in eukaryotic cells]."  In response to Berkeley's allegations that these considerations turned out not to be an impediment to CRISPR's activity in eukaryotic cells, the Board said "[t]he relevant question before us is whether those of skill in the art would have expected there to be problems before the experiments were done," not whether it turned out that the experiments were successful once they were tried.

Finally, the Board rejected Berkeley's citation of other prokaryotic genetic modification systems found to work in eukaryotes, generally on the grounds that there was no "commonality" in these methods that would have refuted Broad's evidence that the skilled worker would not have had any reasonable expectation of success.

In its brief, Berkeley found fault with both the Board's factual determinations and its legal conclusions (although wisely focusing the majority of their 64-page brief on their legal arguments).  These arguments begin with Berkeley's allegation that the PTAB applied an incorrect legal standard for obviousness that cannot be reconciled with the Supreme Court's KSR v. Teleflex Int'l precedent as has been further explicated by the Federal Circuit (most notably in In re Kubin).  Specifically, Berkeley's brief characterizes the Board's analysis as requiring "specific instructions" in the prior art regarding adapting CRIPSR as demonstrated in bacterial systems to use in eukaryotic cells.  This application of the obviousness analysis constitutes a standard "even more rigid" than the Federal Circuit's "teaching-suggestion-motivation test" that the Court "rejected" (albeit not entirely) in KSR.  Citing Kubin and In re O'Farrell, 853 F.2d 894, 903 (Fed. Cir. 1988), Berkeley contends that:

This Court has explained how KSR applies in the context of an "unpredictable art" such as biotechnology.  Kubin, 561 F.3d at 1359-60.  In such fields, the obviousness inquiry should not focus exclusively on the degree of ex ante predictive confidence that a potential solution will succeed, because "for many inventions that seem quite obvious, there is no absolute predictability of success until the invention is reduced to practice" through experimentation.  In re O'Farrell, 853 F.2d 894, 903 (Fed. Cir. 1988).  Rather, the focus should be on the extent of the guidance provided by the prior art—and therefore the extent to which a skilled artisan must innovate beyond that guidance to achieve the solution.  Kubin, 561 F.3d at 1359-60 (the question is whether the claimed advance reflects innovation beyond "the predictable use of prior art elements according to their established functions") (quoting KSR, 550 U.S. at 417).

The "key insight" provided by KSR, according to the brief, is that "when the prior art contains sufficient guidance to enable one skilled in the art to draw on well-known conventional techniques to achieve an advance without any genuine innovation, mere ex ante uncertainty about whether such routine efforts will succeed does not elevate a 'product . . . of ordinary skill and common sense' to the status of a patentable invention," citing KSR.  This is a theme that runs throughout the body of the arguments in the brief.  And, according to Berkeley, applying this "more rigid" standard was legal error by the PTAB.

The brief also asserts as another major theme that the Board erred for not considering contemporaneous evidence of "simultaneous invention," providing a tabulation of the scientific publications that appeared in the art just before and just after Broad's first-filed provisional application:

The presence of this art "can be compelling evidence" of obviousness (the inverse of long-felt need and failure of others) as a secondary consideration, and Berkeley argues that the Board committed legal error in failing to properly consider this evidence.  The Board did consider this evidence, of course, but only to support its appreciation that there was express motivation in the art to apply CRISPR to eukaryotic systems, not to support Berkeley's contention that the skilled worker would have had a reasonable expectation of success.

With regard to the question of expectation of success, the brief argues that this evidence of contemporaneous "invention" by several other groups, and the conventionality of the methods used by these groups (and Broad) in using CRISPR in eukaryotes is strong evidence that this accomplishment required no "innovation" and no "invention" independent of Professors Doudna and Charpentier's disclosure of CRISPR in prokaryotes (in the Jinek 2012 paper published prior to Broad's earliest provisional filing date).

The brief asserts that the Board misinterpreted the scientifically cautious statements by Professor Doudna and other Berkeley experts regarding whether CRISPR was "expected" to be operative in eukaryotic cells.  The "fundamental error" in the Board's consideration of these statements was that they were "imbue[d] . . . with significance divorced from the context in which they were made," which was not as an opinion regarding whether there was a reasonable expectation of success that CRISPR would be operative in eukaryotic cells according to the brief.  Taken as a whole, according to the brief, the prior art establishes that the skilled worker would have had a reasonable expectation of success in using CRISPR in eukaryotes.

The brief also faults the Board for not considering a provisional application by Kim (U.S. Provisional Application No. 61/717,324, filed October 23, 2012, and later published as U.S. Application No. 14/685,568) as prior art under 35 U.S.C. §102(e).  (In many ways this is the brief's strongest argument, because this reference is clearly prior art to the earliest-filed Broad provisional, and Berkeley has a strong argument that the Board not considering it was legal error.)

Finally, Berkeley argues that Broad had not shown that it was entitled to the December 12, 2012 filing date of its earlier provisional.  According to the brief, the Board should have considered October 15, 2013 as the relevant "end date" for considering prior art; if it had done so, many of the references not considered by the Board (set forth in the table above) would have made it impossible for Broad to satisfy its burden of proof that its claims were not obvious.  Instead, the brief contends that the Board "assume without analysis" that Broad was entitled to its December 12, 2012 first provisional filing date for its "hundreds of involved claims," a conclusion Berkeley contends was error.

Broad will have the opportunity to make its arguments in favor of the Board's decision in the coming months; oral argument should be scheduled for some time before the end of the year.

The Effects of the Actavis Decision on Reverse Payment Settlement Agreements in ANDA cases -- Four Years After

By Kevin E. Noonan --

In 2013, the U.S. Supreme Court rendered its decision in FTC v. Actavis, finding that although so-called reverse payment settlement agreements were not per se antitrust violations in cases brought against generic drug makers by under 35 U.S.C. § 271(e)(2), the potential for anticompetitive effects made them subject to antitrust scrutiny under the "rule of reason" standard.  Four years on it is instructive to examine the effects of this decision, on the narrow issue of whether parties to ANDA litigation continue to enter into such settlements, and the broader question of whether generic drug products are entering the marketplace earlier that they would have without the Court's intervention.

To recap, the case followed a long and tortuous series of cases where the Federal Trade Commission, in its own right or in support of private plaintiffs, attempted to convince one appellate court to differ from all the other Circuit Courts of Appeal, who had decided that no antitrust liability arose from such agreements so long as they were properly within the "scope of the patent."  The opinions from the Second, Eleventh, and Federal Circuits were in agreement and provided detailed assessments of why such agreements were not anticompetitive, based on appropriate assertion of presumptively valid patent rights (as well as a recognition that in almost all of these cases the generic drug came to market earlier than if the patents had been litigated and found not invalid and infringed).  The FTC finally prevailed in an action by private plaintiffs (In re K-Dur) appealed to the Third Circuit, where an appellate panel held these agreements to be anticompetitive under a "quick look" analysis (used for cases that, while not being per se illegal were sufficiently questionable that a complete rule-of-reason assessment was unwarranted).  Although this decision gave the Commission the "circuit split" it needed to convince the Supreme Court to grant certiorari, the Court considered a companion case, brought by the Commission against Watson (later acquired by Actavis) and subject to a decision by the Eleventh Circuit adverse to the Commission's position.  The Court agreed that this case presented a "superior vehicle" for its review inter alia because it had a more limited procedural history and was a matter of the actions of a Federal agency charged with policing antitrust activity and supported by that agency's expertise.

The Supreme Court reversed the judgment below, in a decision by Justice Breyer supported by Justices Kennedy, Ginsburg, Sotomayor and Kagan; the Chief Justice dissented, joined by Justices Scalia and Thomas; Justice Alito recused himself from considering this case).  Justice Breyer's majority opinion asserts that reverse payment settlement agreements can "sometimes violate the antitrust laws," and thus that the District Court should not have dismissed the case brought by the FTC.  The opinion focused on the risk to the consuming public posed by such settlements in cases where the patent is invalid or not infringed.  While the majority was willing to accept that the agreement's "anticompetitive effects fall within the scope of the exclusionary potential of the patent," this fact was not sufficient to "immunize the agreement from antitrust scrutiny."  The majority's concern was that while the holder of a valid patent may be exempt from antitrust liability when enforcing the exclusionary right, ANDA litigation involves an allegation that either the patent is invalid (in which case the immunization is lost) or the generic product does not infringe (in which case the patent cannot be enforced against the non-infringing generic drug).  Accordingly, the majority was convinced that such agreements "tend to have significant adverse effects on competition.  The opinion states that "it would be incongruous to determine antitrust legality by measuring the settlement's anticompetitive effects solely against patent law policy, rather than by measuring them against procompetitive antitrust policies as well"; consequently:

[R]ather than measure the length or amount of a restriction solely against the length of the patent's term or its earning potential, as the Court of Appeals apparently did here, this Court answered the antitrust question by considering traditional antitrust factors such as likely anticompetitive effects, redeeming virtues, market power, and potentially offsetting legal considerations present in the circumstances, such as here those related to patents.

The Court also found that the "procompetitive" purposes of the Hatch-Waxman Act are consistent with having courts apply antitrust principles to reverse payment settlement agreements in ANDA litigation.  The opinion enunciated five factors that lower courts should consider in applying the "rule of reason" to reverse payment settlement agreements, which amounted to 1) the size of the payment; 2) whether there are "legitimate justifications" for the agreement; 3) whether the patentee has "market power"; 4) the size of the reverse payment and whether it is "unexplained"; and 5) if there are other ways to settle, why do the parties choose a reverse payment.  Importantly, the decision did not adopt the FTC's initial position (effectively disclaimed at oral argument) that these agreements should be presumptively unlawful or subject to the "quick look" analysis applied by the Third Circuit, because "the likelihood of a reverse payment bringing about anticompetitive effects depends upon its size, its scale in relation to the payer's anticipated future litigation costs, its independence from other services for which it might represent payment, and the lack of any other convincing justification."

However, these instructions left much of the work of deciding the quantum of evidence and scope of proof necessary for a court to make an antitrust determination to the lower courts.  The value and extent of the majority's teachings on this question drew the Chief Justice's disdain in dissent, wherein he wrote "[g]ood luck to the district courts that must, when faced with a patent settlement, weigh the 'likely anticompetitive effects, redeeming virtues, market power, and potentially offsetting legal considerations present in the circumstances.'"

With this as background, it is instructive to review how the district courts and some appellate courts have grappled with the task given them (over the Chief Justice's misgivings) by the Actavis majority.  Generally (and in anticipation of the Supreme Court's decision), settlements were crafted to avoid bald reverse payments in favor of non-monetary considerations.  These include terms of such agreements where the branded company agreed not to produce an "authorized generic" version of a branded drug, or entering into supply agreements with the generic drug maker for active pharmaceutical ingredient (API) manufacturing, or licensing other, unrelated patents.  These gambits yielded variable results for various challenges, either by the FTC or by consumer complaints (often brought by wholesale or resale pharmacies or other drug suppliers, or unions or other benefits providers.

The FTC has provided consolidated evidence and reports on these results; overall the number of ANDA settlements containing reverse payment terms has decreased by about 50% since the Actavis decision, with the trend being more prevalent for first ANDA filers.  There has also been a reduction in the number of settlements involving first filers containing agreements by the branded drug maker not to market an "authorized generic" in competition with the generic entrant.  The FTC Report reveals that 81-87% of ANDA litigation settlement agreements filed in FY 2014 did not contain any compensation from the branded to the generic company and/or restrictions on generic market entry.

In the courts, there is general recognition that both "extreme" positions were rejected by the Supreme Court; the patent grant does not give blanket immunity to antitrust liability, but the existence of the agreement does not presume liability either.  In applying the "rule of reason," courts have come to different conclusions and used different standards (resulting in the unpredictability the Chief Justice foresaw).  One of the first questions addressed has been whether the Court's decision limits antitrust scrutiny to those agreements containing payments of money.  One case that addressed this question was In re Lipitor Antitrust Litigation (D. N.J. Sept. 12, 2014), where the District Court ruled that the Actavis standard is not limited to money settlements.  A "payment," according to the Court, could be anything having value, but even though settlement agreements not having monetary terms (classic "reverse payments") can satisfy the Actavis standard, plaintiffs must plead sufficient facts to establish the economic value of what a generic drug maker receives:

[W]here Plaintiffs rely on a non-monetary reverse payment of an inchoate claim, they must plead plausible facts including an estimate the monetary value of same so the Actavis rationale can be applied.  . . .  To meet this standard, Plaintiffs must stand in the shoes of the underlying parties at the time of the settlement, and determine an estimate of the monetary value of the settlement at that time.

In the Lipitor case the District Court dismissed on the pleadings; the mere existence of a settlement is not enough, according to the opinion, a plaintiff must plead sufficient facts to establish the economic value of what the generic drug maker received, so that benefit could be used according to the Supreme Court's Actavis scheme for applying the rule of reason to the parties' activities.  In this regard, the developing consensus for bringing an antitrust case puts on the plaintiff the burden of showing an agreement falls within the scope of Supreme Court's factors that indicate a court should perform a "rule of reason" antitrust assessment, which then shifts the burden to the defendant (or, more typically, defendants) to show the pro-competitive features of the agreement.  The ultimate burden of establishing an antitrust violation always remains on the plaintiff.

For its part, the FTC has continued to mount antitrust challenges to settlement agreements in ANDA litigation, with varying results.  When successful, however, the penalties can be chilling:  for example, in two recent cases (In re: Opana ER Antitrust Litigation (MDL) (N.D. Ill. 2017); In re: Lidoderm Antitrust Litigation (N.D. Cal. 2017)) the Commission required antitrust defendants to abstain from settlements containing no-authorized generic and other terms for 10 years.  In another recent case, Teva was forced to disgorge $1.2 billion received as the result of settlement (Federal Trade Commission v. Cephalon Inc. (E.D. Pa 2016)).

Results of representative cases involving antitrust allegations as the result of reverse payment settlement agreements in ANDA cases post-Actavis are tabulated below (click on table to enlarge).

The economic importance of these issues is evident by the effect of generic drug competition on consumer prices for drugs.  The General Accounting Office estimates U.S. prescription drug cost savings in excess of $1 trillion between 2003 and 2012, and the IMS Institute for Healthcare Informatics has accumulated statistics showing that generic drugs account for 29% of total drug sales and 86% of prescriptions.  Duke economic Henry G. Grabowsky has published the results of his research showing that 70% of branded drug sales are lost to a generic version during the first month of generic entry into the marketplace, and that 84% of branded drugs are lost to their generic competitors within the first year of generic availability (Henry G. Grabowski et al., "Recent Trends in Brand-Name and Generic Drug Competition," Journal of Medical Economics, December 2013: 6–7).

More recently, another practice in the pharmaceutical industry termed "product hopping" has also raised antitrust scrutiny.  This practice arises from FDA regulations regarding generic substitution:  in order for a generic drug to be substituted by pharmacist, need branded counterpart (AB substitution).  As the strategy has developed, a branded drug maker switches from one version of a drug to a related version and then clears pharmacy shelves of the earlier version.  Consequently, a generic equivalent cannot take market share, because the branded drug maker has switched to a new version and there is no longer the possibility for AB substitution.  This creates a tension between antitrust activities and competitive capitalist stratagems, between progress (sometimes a newer version really is "improved") and only cosmetic changes ("evergreening").  As these cases are turning out, whether antitrust liability lies may depend on whether branded drug maker acts to remove earlier version from pharmacy shelves.  For example, in New York v. Actavis PLC et al. (2nd Cir. 2016), involving Namenda IR (newer ER version), efforts to remove the IR version from shelves were prevented by injunction.  Similarly, contrast Mylan Pharmaceuticals Inc. et al. v. Warner Chilcott PLC et al. (E.D. Pa. 2015) (involving the drug Doryx) and In re: Suboxone Antitrust Litigation (E.D. Pa. 2015), where the drug in each case was pulled from pharmacy shelves, resulting in liability, with Walgreen Co. et al. v. AstraZeneca Pharmaceuticals LP et al. (D.D.C. 2015), where the prior omeprazole formulation was not pulled from pharmacy shelves in favor of the Nexium^® substitute.

In sum, non-monetary terms of settlement (including branded innovator companies agreeing not to market competing "authorized generics") are proving to be enough to raise antitrust concerns, with courts instead looking at the entirety of what each party gains and loses.  Although noninfringement allegations in Paragraph IV suits most likely suggest an antitrust violation, antitrust plaintiffs (including the FTC) will need to provide sufficient nexus between agreement terms and anticompetitive outcomes to sufficiently plead and to establish anticompetitive consequences under the rule of reason to prevail.

Adapted from an MBHB webinar, "Antitrust Issues in ANDA Patent Litigation," presented May 24, 2017.